Moelis Founder to Keep Control After IPO

Ken Moelis participates in a roundtable discussion during The Deal Economy 2011 conference at the New York Stock Exchange on Dec. 2, 2010.

Associated Press

Moelis & Co. will remain controlled by its founder after it goes public, testing investors’ willingness to swallow limited shareholder rights in exchange for a piece of the boutique investment bank’s growing revenues.

Ken Moelis, who founded the firm in 2007 and will remain its chairman and chief executive, will own shares that carry 10 votes each, compared to one vote for those held by the public, according to documents made public Tuesday. Mr. Moelis’s voting power will exceed 50%, according to the filing, which details its widely anticipated initial public offering.

This “dual-class” share setup will make it difficult for shareholders to influence the company. It will also exempt the bank from certain stock-exchange rules, including a requirement that a majority of its board be independent of management. Without direct ties to management, these directors are thought to better look out for public stockholders’ interests.

It also makes Moelis an outlier among public companies, and particularly among financial firms. Its closest listed peer, Evercore Partners Inc., doesn’t give insiders extra votes.

About 7% of the 1,500 largest public companies were controlled by insiders as of October 2012, according to Institutional Shareholder Services Inc. Most are technology companies like Facebook Inc. and Google Inc. and family-run companies like the New York Times Co., whose insiders get their power from special super-voting shares, like those to be held by Mr. Moelis.

The setup is likely to evoke some grumbles from asset managers and pension funds, whose enthusiasm for the stock will determine how much money Moelis can raise. Institutional investors tend to balk at majority-control setups, which they say make directors less accountable to public investors.

“Once you decide to access public money, that comes with shareholder rights,” said Jonathan Feigelson, head of corporate governance at TIAA-CREF, which manages $564 billion in retirement assets. “We’re not very enthusiastic about dual-class companies.”

Still, those hoping to cash in on Moelis’s rising fortunes may be willing to overlook its stock structure. The investment bank’s revenues climbed 6.6% to $411 million last year following assignments on high-profile deals like the $23 billion buyout of H.J. Heinz Co. and the $35 billion merger of advertising agencies Publicis Groupe SA and Omicom Group Inc.

Confidence in Mr. Moelis, who was a formidable dealmaker at UBS AG before striking out on his own, may also help quiet complaints about the super-voting shares, experts said.

“If you like the story and trust the people, you’re willing to forgive all manner of things,” said Jill Fisch, a corporate governance expert at the University of Pennsylvania.